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Join Me
Joined: 14 Jan 2008
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 Posted: Tue Sep 09, 2008 7:24 am Post subject: |
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| Pluto wrote: |
Fannie Mae, Freddie Mac and their kid sister Sallie Mae should be put on the road to total and complete government divestment immediately. The taxpayer bailout of the two mortgage giants is one of the greatest financial tragedies of our time; it may likely cost more than a half a trillion, or perhaps a trillion, dollars by the time all is said and done. That said, I don't think the blame lies on any one person or party. Join Me's simplistic assertion that this is all Bush's fault is foolish. Especially, where in the Congress, Barny Frank and Charles Schumer, are calling for more socialization, if not outright nationalization. Bush and Sec. Paulson, ex-CEO of G. Sachs who's also proven himself to be a complete douchbag, should follow their free market instincts and clearly and unequivocally state that Fred, Fan and Sal are to be completely privatized with no more gov't intervention.
WSJ Editorial Board
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Weekend at Henry's
September 8, 2008; Page A18
In the 1989 movie "Weekend at Bernie's," a pair of young executives create the illusion that their dead boss is still alive to keep a party going. That's not too far from the premise of this weekend's Treasury bailout of Fannie Mae and Freddie Mac, the mortgage giants that have become financial zombies.
Treasury Secretary Henry Paulson wants to prop up the walking dead so the world keeps buying their mortgage-backed securities. His action may calm jittery credit markets, and it may get the companies through the current mortgage crisis -- albeit at enormous cost to American taxpayers. The tragedy is that he and Congress didn't act 18 months ago -- when the cost would have been far less -- and that he still isn't killing the Fannie and Freddie business model that has done so much damage. These corpses could still return to haunt us again.
* * *
At least Mr. Paulson has finally figured out he's been lied to. He arrived in Washington fresh from the Wall Street turnip truck saying that the battle over the two government-sponsored enterprises (GSEs) was nothing but a scrap between "ideologues." So he bought the Congressional line that Fan and Fred weren't a problem and would help financial markets through the housing recession. Even as he won new power this summer to add taxpayer capital to the companies, he said he had no intention to use that power and that he wanted to sustain them in their "current form." That political theater merely prolonged the market agony, while giving the companies incentive to take even greater risks.
This weekend's formal rescue puts an end to those illusions. Treasury and the new GSE regulator -- the Federal Housing Finance Agency -- both acknowledge that the companies are facing huge mortgage losses that will soon overwhelm their capital cushions. And this time Mr. Paulson has at least demanded something in return for his blank taxpayer check.
The new federal "conservatorship" is a form of nationalization that puts regulators firmly in control. The feds fired the company boards and CEOs, though the clean up needs to go further to change the corporate cultures. Both companies remain Beltway satraps that hire for reasons of political connection, not financial expertise.
The taxpayer purchase of preferred stock means that the feds will own about 80% of the companies if all the warrants are ultimately exercised. The feds also stopped dividend payments, saving about $2 billion a year. This amounts to significant dilution for current Fannie and Freddie shareholders, and it offers taxpayers some return on their bailout risk if the companies recover.
We only wish Mr. Paulson had gone further and erased all private equity holders the way the feds do in a typical bank failure. Fan and Fred holders had profited handsomely for decades by exploiting an implicit taxpayer guarantee that their management claimed didn't exist. Now that the taxpayers are in fact stepping in, the current common and preferred holders deserve to lose everything. Mr. Paulson apparently wanted to dodge that political fight. If Fan and Fred share prices rally this week, we'll know Mr. Paulson didn't demand enough.
The Treasury chief also gave a free pass to the holders of some $18 billion in Fan and Fred subordinated debt. He did so even though these securities were understood not to have the same status as mortgage-backed securities or other Fannie debt, and even though this will set a bad precedent for other bailouts. Watch for Citigroup's subordinated debt to jump in price as investors conclude that the feds would do the same thing if Citi needs a rescue.
By far the biggest risk here, however, is that the companies could still emerge with their business model intact. That model is the perverse mix of private profit and public risk, which gave them an incentive to make irresponsible mortgage bets with a taxpayer guarantee.
Mr. Paulson could have ended that model immediately by putting the companies into "receivership." Both companies could have continued to securitize mortgages, even as their riskiest businesses were wound down. But Treasury says its lawyers at Wachtell Lipton advised that receivership might have triggered default claims and thus caused a run on Fannie and Freddie debt. We hear there's some legal debate on that point. And in any case, had Mr. Paulson acted sooner and given markets time to understand that receivership doesn't mean immediate liquidation, the risk of a run might now be far less.
The Treasury plan does at least put some useful limits on Fan and Fred risk-taking, albeit starting only in 2010. Until the housing market bottoms out, presumably in 2009, the feds want the two companies to keep securitizing and guaranteeing mortgages as they do now. But in January 2010, the companies will have to start reducing their portfolios of MBSs by 10% a year, to a total of $250 billion. That will reduce one giant source of systemic financial risk.
Also in 2010, the companies will have to start paying a fee to the feds in return for their taxpayer guarantee. The fee -- which could be paid in cash, or in preferred stock and thus add to the government's controlling stake -- is designed to level the playing field with private mortgage securitizers.
Treasury says all of this will provide a motive for Congress and the new President to change how Fan and Fred do business, and in the meantime the conservator has also ordered a stop to their political lobbying. It's also nice to see that on this point Mr. Paulson has found religion. In his statement Sunday, he blamed the need for a bailout on "the inherent conflict and flawed business model embedded in the GSE structure." Welcome to our merry band of "ideologues," Mr. Secretary.
The Treasury chief has nonetheless decided to leave the hardest political choices to his successor, who will have to face down the usual phalanx of Fannie apologists: Democratic barons Barney Frank and Chuck Schumer, the homebuilders, various Wall Street sages and left-wing journalists.
Both Barack Obama and John McCain are now saying sensible things about the need to change the companies. But who knows how the political mood will have shifted once the housing slump passes. It's easy to imagine the next Treasury Secretary concluding that he also thinks the fight for permanent reform is too difficult. Then we are back to the same old stand.
* * *
The Fannie-Freddie bailout is one of the great political scandals of our age, all the more because it was so obviously coming for so long. Officials at the Federal Reserve warned about it for years, only to be ignored by both parties on Capitol Hill. The least we can do now is bury these undead monsters for all time.
See all of today's editorials and op-eds, plus video commentary, on Opinion Journal.
And add your comments to the Opinion Journal forum. |
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Whatever happened to the good old days when the title "Commander and Chief" actually meant a man had to have the balls to be accountable for whatever happens on his watch? How many more months of Bush and his apologists do we have left?
With the mess King George has gotten the world into I guess it won't be a quick fix though so we might just as get used to passing the buck. |
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sargx
Joined: 29 Nov 2007
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| Posted: Tue Sep 09, 2008 9:14 pm Post subject: |
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| Join Me wrote: |
Whatever happened to the good old days when the title "Commander and Chief" actually meant a man had to have the balls to be accountable for whatever happens on his watch? How many more months of Bush and his apologists do we have left?
With the mess King George has gotten the world into I guess it won't be a quick fix though so we might just as get used to passing the buck. |
You really offended me with your intellectual and thought provoking criticism. I am honestly at a loss at how to compete with you. I surrender. I will vote democrat, you have convinced me.
Also, you try too hard. |
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Join Me
Joined: 14 Jan 2008
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| Posted: Wed Sep 10, 2008 5:23 am Post subject: |
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| sargx wrote: |
| Join Me wrote: |
Whatever happened to the good old days when the title "Commander and Chief" actually meant a man had to have the balls to be accountable for whatever happens on his watch? How many more months of Bush and his apologists do we have left?
With the mess King George has gotten the world into I guess it won't be a quick fix though so we might just as get used to passing the buck. |
You really offended me with your intellectual and thought provoking criticism. I am honestly at a loss at how to compete with you. I surrender. I will vote democrat, you have convinced me.
Also, you try too hard. |
Sometimes you don't need to be an economist with a bunch of pie charts to observe and state the obvious. |
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Pluto
Joined: 19 Dec 2006
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| Posted: Wed Sep 10, 2008 5:47 am Post subject: |
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| Join Me wrote: |
| With the mess King George has gotten the world into I guess it won't be a quick fix though so we might just as get used to passing the buck. |
I wasn't aware we lived in a monarchy where 'King George' had total and absolute control over the government, the country and, indeed, our very lives. I really had no idea we were slaves to the state that 'King George's' iron fist rules. or at least until Jan. 20, 2009 |
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Join Me
Joined: 14 Jan 2008
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| Posted: Wed Sep 10, 2008 5:52 am Post subject: |
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| Pluto wrote: |
| Join Me wrote: |
| With the mess King George has gotten the world into I guess it won't be a quick fix though so we might just as get used to passing the buck. |
I wasn't aware we lived in a monarchy where 'King George' had total and absolute control over the government, the country and, indeed, our very lives. I really had no idea we were slaves to the state that 'King George's' iron fist rules. or at least until Jan. 20, 2009 |
Yeh, I wasn't aware of it either. That was until George Bush started to snatch people off the streets and ship them to Guantanamo Bay against their will to be held for indefinite terms without any opportunity to defend themselves against whatever it is they are accused of.
Now I think we all (apparently excluding you) know better.
Can you tell me why a "President" who claims to be a defender of freedom finds it necessary to violate the US Constitution by denying others their freedom while imprisoning them in a communist country? If King George doesn't like the rules you need to follow while living in a democracy maybe he should think about heading to Cuba full time...he won't be missed in the US that is for certain. |
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RJjr
Joined: 17 Aug 2006
Location: Turning on a Lamp
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| Posted: Wed Sep 10, 2008 6:33 am Post subject: |
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Add in this socialist bullshit along with the pathetic, cowardly Patriot Act surveillance on the American people and what are we left with? Castro and others must be laughing their asses off at us.
I like what Nouriel Roubini said about it:
| Nouriel Roubini wrote: |
This is the biggest and most socialist government intervention in economic affairs since the formation of the Soviet Union and Communist China. So foreign investors are now welcome to the USSRA (the United Socialist State Republic of America) where they can earn fat spreads relative to Treasuries on agency debt and never face any credit risks (not even the subordinated debt holders who made a fortune yesterday as those claims were also made whole).
Like scores of evangelists and hypocrites and moralists who spew and praise family values and pretend to be holier than thou and are then regularly caught cheating or cross dressing or found to be perverts these Bush hypocrites who spewed for years the glory of unfettered wild west laissez faire jungle capitalism (and never believed in any sensible and appropriate regulation and supervision of financial markets) allowed the biggest debt bubble ever to fester without any control, have caused the biggest financial crisis since the Great Depression and are now forced to perform the biggest government intervention and nationalizations in the recent history of humanity, all for the benefit of the rich and the well connected. So Comrades Bush and Paulson and Bernanke will rightly pass to the history books as a troika of Bolsheviks who turned the USA into the USSRA. |
Bush & Co. are doing their best to prove Marx correct:
| Karl Marx wrote: |
| Democracy is the road to socialism. |
The GOP and Democratic Party (Dumbo and Jackass) have done to America what Stalin was never able to do. |
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mises
Joined: 05 Nov 2007
Location: retired
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| Posted: Thu Sep 11, 2008 4:48 am Post subject: |
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http://www.boom2bust.com/2008/09/10/world%E2%80%99s-highest-paid-investment-adviser-us-faces-hyperinflation-or-depression/
http://www.marketwatch.com/news/story/unraveling-according-schedule/story.aspx?guid={FE012CDD-6DC4-4543-8B13-340892E7454B}
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World�s Highest Paid Investment Adviser: U.S. Faces Hyperinflation Or Depression
NEW YORK (MarketWatch) -- A Fannie-Freddie bailout fillip in financial markets? Maybe, but a megabear says it just shows the world is unraveling right on schedule.
Harry Schultz' The International Harry Schultz Letter was posted last night right about the time the Fannie Mae-Freddie Mac bailout was reported. But Schultz anticipated it, writing sarcastically:
"Flash: As we go to press, the US Government reveals plan to take over Freddie Mac and Fannie Mae, the biggest bail-out by taxpayers in history. It also wipes out the shareholders! Sunday selected to avoid stock market action same day, just as bank closures are told after market close Friday. That tells you what shape markets are in when government and CEOs hide behind holidays."
Schultz had earlier made his overview clear (I'm translating slightly from of his text-message style):
"Fed maneuver room approximately gone. Any $US injection big enough to avert a depression triggers runaway inflation. If not big enough: depression. US on knife-edge. Gold helps you either way.
Schultz suggests just two alternative scenarios, both equally appalling:
"If Bush bails them all out, the die would be cast for inflation unseen in the West since 1923 Germany. If no bail: Hello, 1929."
Gee, thanks.
Plus ... well, Fannie and Freddie have collapsed, haven't they?
In his latest issue, Schultz summarizes:
"Widespread stagflation will probably now build more inflation than stagnation, then gradually morph into more stagnation than inflation. Then, deflation takes over, and ultimately, depression. All this over next 9 years. |
Yuck. |
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mises
Joined: 05 Nov 2007
Location: retired
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| Posted: Thu Sep 11, 2008 2:01 pm Post subject: |
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http://www.cnbc.com/id/26656750
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Bailouts Will Push US into Depression: Manager
The end result of the global economic slowdown may be the U.S. announcing national bankruptcy as the government cannot afford the bailouts that it promised and the market will not bail out the government, Martin Hennecke, senior manager of private clients at Tyche, told CNBC on Thursday.
"We expect a depression in the United States. We expect a depression, very possibly, also in Europe," Hennecke said on "Worldwide Exchange."
The estimated $300 billion cost of the Fannie/Freddie bailout will probably be considered as a loss that the government will have to take, therefore passing it on to taxpayers, he explained.
"We already have $3 trillion of debt, as far as the U.S. government is concerned. These debt figures across the U.S. economy are rising very sharply."
When the government can no longer pass the United States' "immense debt" on to taxpayers, it will turn to the holders of U.S. dollars, leading to the eventual downfall of the currency, Hennecke said.
"Definitely, it (the dollar) is not a safe place to be invested in, as real inflation is closer to 10 or 11 percent than the actual inflation numbers given by the U.S. government," Hennecke said on "Worldwide Exchange".
Hennecke's stock allocations are mainly Asian-based, especially in the Chinese market as the country's government has a large amount of cash and the macroeconomics are fundamentally strong.
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Maybe hyperbole. But how much can be absorbed?
http://online.wsj.com/article/SB122116292232524671.html?mod=googlenews_wsj
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Lehman looks for a buyer
Lehman Brothers Holdings Inc. is actively shopping itself to potential buyers, including Bank of America Corp., people familiar with the matter said Thursday.
The need for a sale intensified as Lehman's shares dropped 45% in Thursday trading, creating new doubts about its ability to trade with other Wall Street firms while keeping its best talent.
But potential buyers remain wary about plugging holes in Lehman's balance sheet, and are increasingly looking to the U.S. government to help backstop future losses, according to people familiar with the talks.
A number of these buyers would "come out of the woodwork" if the U.S. were to step in, said a person monitoring the process. It remains unclear whether the U.S. Treasury or Federal Reserve would take such steps, as was done when the government assisted J.P. Morgan Chase & Co. in its Bear Stearns takeover in March. |
http://www.latimes.com/news/nationworld/nation/la-na-energy10-2008sep10,0,7020548.story
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House Democrats consider aid plan for auto industry
WASHINGTON -- House Democratic leaders are considering a $25-billion rescue package for the auto industry as part of an effort to bolster the sagging U.S. economy. The aid proposal, with its clear political implications for key battleground states, is likely to be put on a legislative fast track, possibly clearing Congress in a matter of weeks.
"This is very, very important. It's an important industry in our country," House Speaker Nancy Pelosi (D-San Francisco) said. "It's about jobs. Jobs, jobs, jobs, jobs."
Coming just days after the Treasury stepped in to bolster housing and financial markets with a takeover of mortgage titans Fannie Mae and Freddie Mac, the Democrats' proposal reflects a new readiness in Washington to intervene in economic trouble spots. It also is a sign of the intensifying effort by presidential candidates in both parties to woo voters in the battered but politically pivotal states that are home to the auto industry -- especially Michigan and Ohio.
"The best bill to include this in is the bill that has the best chance of getting passed," said Greg Martin, Washington spokesman for General Motors Corp. |
Is America still capitalist?
http://www.rgemonitor.com/roubini-monitor/253529/comrades_bush_paulson_and_bernanke_welcome_you_to_the_ussra_united_socialist_state_republic_of_america
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Comrades Bush, Paulson and Bernanke Welcome You to the USSRA (United Socialist State Republic of America)
Delicious Digg Facebook reddit Technorati
Nouriel Roubini | Sep 9, 2008
The now inevitable nationalization of Fannie and Freddie is the most radical regime change in global economic and financial affairs in decades. For the last twenty years after the collapse of the USSR, the fall of the Iron Curtain and the economic reforms in China and other emerging market economies the world economy has moved away from state ownership of the economy and towards privatization of previously stated owned enterprises. This trend was aggressively supported the United States that preached right and left the benefits of free markets and free private enterprise.
Today instead the US has performed the greatest nationalization in the history of humanity. By nationalizing Fannie and Freddie the US has increased its public assets by almost $6 trillion and has increased its public debt/liabilities by another $6 trillion. The US has also turned itself into the largest government-owned hedge fund in the world: by injecting a likely $200 billion of capital into Fannie and Freddie and taking on almost $6 trillion of liabilities of such GSEs the US has also undertaken the biggest and most levered LBO (�leveraged buy-out�) in human history that has a debt to equity ratio of 30 ($6,000 billion of debt against $200 billion of equity).
So now Comrades Bush, Paulson and Bernanke (as originally nicknamed by Willem Buiter) have now turned the USA into the USSRA (the United Socialist State Republic of America). Socialism is indeed alive and well in America; but this is socialism for the rich, the well connected and Wall Street. A socialism where profits are privatized and losses are socialized with the US tax-payer being charged the bill of $300 billion.
This biggest bailout and nationalization in human history comes from the most fanatically and ideologically zealot free-market laissez-faire administration in US history. These are the folks who for years spewed the rhetoric of free markets and cutting down government intervention in economic affairs. But they were so fanatically ideological about free markets that they did not realize that financial and other markets without proper rules, supervision and regulation are like a jungle where greed � untempered by fear of loss or of punishment � leads to credit bubbles and asset bubbles and manias and eventual bust and panics.
The ideologue �regulators� who literally held a chain saw at a public event to smash �unnecessary regulations� are now communists nationalizing private firms and socializing their losses: the bailout of the Bear Stearns creditors, the bailout of Fannie and Freddie, the use of the Fed balance sheet (hundreds of billions of safe US Treasuries swapped for junk toxic illiquid private securities), the use of the other GSEs (the Federal Home Loan Bank system) to provide hundreds of billions of dollars of �liquidity� to distressed, illiquid and insolvent mortgage lenders, the use of the SEC to manipulate the stock market (restrictions on short sales), the use of the US Treasury to manipulate the mortgage market (Treasury will now for the first time outright buy agency MBS to manipulate and prop up this market), the creation of a whole host of new bailout facilities (TAF, TSLF, PDCF) to prop and rescue banks and, for the first time since the Great Depression,to bail out non-bank financial institutions, and a whole range of other executive and legislative actions (including the recent bill to provide a public guarantee to mortgage for banks willing to reduce their face value).
This is the biggest and most socialist government intervention in economic affairs since the formation of the Soviet Union and Communist China. So foreign investors are now welcome to the USSRA (the United Socialist State Republic of America) where they can earn fat spreads relative to Treasuries on agency debt and never face any credit risks (not even the subordinated debt holders who made a fortune yesterday as those claims were also made whole).
Like scores of evangelists and hypocrites and moralists who spew and praise family values and pretend to be holier than thou and are then regularly caught cheating or cross dressing or found to be perverts these Bush hypocrites who spewed for years the glory of unfettered wild west laissez faire jungle capitalism (and never believed in any sensible and appropriate regulation and supervision of financial markets) allowed the biggest debt bubble ever to fester without any control, have caused the biggest financial crisis since the Great Depression and are now forced to perform the biggest government intervention and nationalizations in the recent history of humanity, all for the benefit of the rich and the well connected. So Comrades Bush and Paulson and Bernanke will rightly pass to the history books as a troika of Bolsheviks who turned the USA into the USSRA. Fanatic zealots of any religion are always pests that cause havoc and destruction with their inflexible fanaticism; but they usually don�t run the biggest economy in the world. But these laissez faire voodoo-economics zealots in charge of the USA have now caused the biggest financial crisis since the Great Depression and the nastiest economic crisis in decades. So let them be shamed in public for their hypocrisy and zealotry that has caused so much financial and economic damage. |
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mises
Joined: 05 Nov 2007
Location: retired
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| Posted: Sun Sep 14, 2008 7:34 pm Post subject: |
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Unreal. Now AIG wants 10bil from the Fed. They rejected private venture capital because it would shake up management severely and went to the government instead.
http://online.wsj.com/article/SB122142474136033581.html?mod=special_coverage
AIG is the largest writer of credit default swaps (insurance on debt held). AIG is not regulated by the FED. It has no business asking the Fed for money. The total CDS market is valued somewhere around 45-60 trillion. I believe that CDS will be a household known acronym in short order.
http://www.nytimes.com/2008/02/17/business/17swap.html
The financial system is now a weapon of mass economic destruction. My turn for hyperbole: If the CDS market tanks, we are in the Second Great Depression. |
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mises
Joined: 05 Nov 2007
Location: retired
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| Posted: Sun Sep 14, 2008 7:54 pm Post subject: |
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My mistake. AIG asked for 40billion, not 10. Nickles and dimes, really.
Fannie, Freddie, Lehman, Merill, AIG and WaMu within 8 days. |
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bacasper
Joined: 26 Mar 2007
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| Posted: Sun Sep 14, 2008 11:10 pm Post subject: |
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| mises wrote: |
My mistake. AIG asked for 40billion, not 10. Nickles and dimes, really.
Fannie, Freddie, Lehman, Merill, AIG and WaMu within 8 days. |
What happened with WaMu? |
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Milwaukiedave
Joined: 02 Oct 2004
Location: Goseong
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| Posted: Sun Sep 14, 2008 11:33 pm Post subject: |
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| mises wrote: |
My mistake. AIG asked for 40billion, not 10. Nickles and dimes, really.
Fannie, Freddie, Lehman, Merill, AIG and WaMu within 8 days. |
I wonder how many more of these companies are going to come close to collapsing.
Lehman filed for bankruptcy according to CNN. AIG is in some big trouble as well. |
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blaseblasphemener
Joined: 01 Jun 2006
Location: There's a voice, keeps on calling me, down the road, that's where I'll always be
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| Posted: Mon Sep 15, 2008 3:33 am Post subject: |
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A year ago, if someone would have predicted that in the next 12 months:
a) the largest insurance company in the world would need govt assistance to stop from going under (AIG)
b) Fannie Mae and Freddie Mac would go under, but the govt took them over
c) Bear Stearns would go under, but was saved by the Fed
d) Lehman Brothers would declare bankruptcy
e) Washington Mutual, America's largest Savings and Loan, would be on the brink and will need significant financing from the Fed
I don't think anyone would be talking about a recession if these things were predicted to come to pass. I think people would be saying America was in the throws of another a financial tsunami, a great, great depression.
Greenspan said it is a once in a century event.
What will America look like by Christmas? |
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mises
Joined: 05 Nov 2007
Location: retired
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| Posted: Mon Sep 15, 2008 6:02 am Post subject: |
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| bacasper wrote: |
| mises wrote: |
My mistake. AIG asked for 40billion, not 10. Nickles and dimes, really.
Fannie, Freddie, Lehman, Merill, AIG and WaMu within 8 days. |
What happened with WaMu? |
It lost 40% of value in 3 days. Will be a dead company shortly.
| Quote: |
WaMu Failure Could Trigger Extension of Deposit Guarantees
The alert have taken note that the failure of Washington Mutual, which looks increasingly likely, would consume the FDICs reserves and, as in the savings and loan crisis, force the agency to go hat in hand to Congress for more money.
But this is comparatively early in our burgeoning banking crisis for the bulwark of commercial banks to be tested. Worse, the concern is that uninsured depositors will flee weak banks, and in process, push more over the edge.
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http://www.nakedcapitalism.com/2008/09/wamu-failure-could-trigger-extension-of.html
The government will have to bail out the government, in this case.
Last edited by mises on Mon Sep 15, 2008 6:22 am; edited 1 time in total |
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mises
Joined: 05 Nov 2007
Location: retired
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| Posted: Mon Sep 15, 2008 6:15 am Post subject: |
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| This is all quite incredible. These financial institutions, especially the primary brokers like Lehman literally have a license to print money because of fractional reserve banking. And they're going broke. |
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